Barbados is home to some 270 active captives, according to industry statistics. But with its idyllic year-round climate, good infrastructure and low offshore tax rates, it’s a wonder that the Caribbean islands captive count isn’t higher.
Barbados is home to some 270 active captives, according to industry statistics. But with its idyllic year-round climate, good infrastructure and low offshore tax rates, it’s a wonder that the Caribbean islands captive count isn’t higher.
The island has been a player in the international insurance industry since it introduced the Barbados Exempt Insurance Act in 1983.
The act defines exempt insurance as the business of insuring risks outside of Barbados by a company that is not owned by persons resident in CARICOM, an association of Caribbean countries.
For a company to qualify under the act, it must be incorporated in Barbados with a minimum capital of $125,000 and at least one resident Barbadian citizen as a director, and also only carry out exempt insurance business.
Barbados was late to join the international insurance market in comparison to other Caribbean destinations, with no real activity seen until 1984, when the Barbados-US tax treaty was signed.
Since then, Scott Stollmeyer, operations manager at Amphora Captive Insurance Managers, feels that while numbers have remained positive, the road has not always been smooth.
He says: “Growth had been steady leading up to around 2004, but since then the growth has slowed off significantly. We have never lost any captives from a numbers standpoint but the growth experienced in the 80s, 90s and early 2000s clearly slowed.”
On top of exempt insurance companies, qualifying insurance companies can also be established in Barbados, says Emeline Taitt, acting CEO of Invest Barbados.
“The business conducted by these entities falls into two broad categories—general insurance and life insurance. In the general insurance category, the main lines written include property, property and casualty, motor, warranties, bonds, employee benefits, workers’ compensation, employer liability, public liability, malpractice, credit risk and environmental liability.”
Barbados has long been thought of as the leading domicile of choice for Canadian captives, because of a strong, mutual business relationship that has been in place for many years.
Taitt states that approximately 51 percent of active companies that are domiciled in Barbados originate from Canada and 40 percent are US-owned. The remaining percentages derive from Europe, Latin America and the Caribbean.
The Barbados-Canada double taxation agreement (DTA) was signed in 1980 to ensure that Canada would avoid double taxation—a situation where profits are taxed twice, in foreign country and then again when they are forwarded to the parent company’s country of residence.
According to the Barbados Financial Services Commission, dividends that are paid out of income earned from captive insurance business in Barbados to a Canadian company are considered ‘exempt surplus’ and are not subject to Canadian taxes, providing the risks are non-Canadian.
Barbados and Canada’s relationship has a history that spans decades, though Stollmeyer believes the bond evolved much earlier.
He says: “Barbados has had a long standing relationship with Canada from the 1800s. In fact there was a Royal Bank of Canada branch in Barbados before there was one in Toronto.”
While the Canadian DTA is the most profitable tax agreement that Barbados has concluded, the island also boasts numerous others with the likes of the UK, China, Luxembourg and Sweden.
Offshore domiciles such as Barbados are still working to shake off the ‘tax haven’ label that many commentators continue to attach to them.
But Taitt says that Barbados is known by governments, regulators and business people to be a leading, low tax jurisdiction that fully supports government-to-government transparency. But due to its international prominence, it can be mistakenly included in public discussions regarding tax havens.
“Taxes are levied on international companies. The benefits of using Barbados come in the low tax rates payable and the avoidance of double taxation on repatriation of profits. Barbados has also had a tradition of sharing information for more than three decades with tax authorities in instances where deemed necessary. The country is moving to phase two of the global forum peer review, another testament to its transparency and compliance with regulatory requirements. The domicile has and continues therefore to show that it is not a tax haven.”
Stollmeyer says that the island’s regulatory framework is flexible in regards to both reserve requirements and applicable accounting principles, and that there is no indication of the island adopting Solvency II equivalency.
Taitt adds that the cost of living in Barbados—which is typically lower than that of its main competitors—attracts captives to the island.
“Barbados also stands out from other jurisdictions because of the high availability of indigenous human capital. Barbados has a large pool of highly educated and qualified professionals able to meet the employment needs of captives and captive management. This aids in cost competitiveness as the need for higher paid foreign employees is lessened,” says Taitt.
American Overseas Group was a testament to this last year when it decided to re-domesticate its operating subsidiary, American Overseas Reinsurance Company (AORE), from Bermuda to Barbados.
Speaking at the time, American Overseas Group CEO David Steel said: “Our strategy is to enhance shareholder value by writing short-tail, P&C [property and casualty] reinsurance business complimenting our long-tail financial guaranty portfolio run-off. AORE’s re-domestication is integral to our business plan.”
